Research on shipping finance in an international maritime centre

• Main Author: Sun, Xi
• Other Authors: Lam Siu Lee
• Format: Final Year Project
• Language: English
• Published: 2016
• Subjects: DRNTU::Social sciences
• Online Access: http://hdl.handle.net/10356/67457
• Institution: Nanyang Technological University

Given its large magnitude of capital requirement and long payback period, ship finance has a significant bearing on credit risk due to the volatile nature of shipping industry. Traditionally, bank lending has been the most common way for ship owners to obtain funding, however, the landscape of ship finance market has changed dramatically due to transformation of global financial system and shipping market downturn. While representing a crucial sector in the maritime cluster, ship finance, especially the development of ship finance banks, has been under-explored in the existing literature. As such, this paper investigates, theoretically and empirically, banks’ changing position in the ship finance market by evaluating their exposure to the sector and financial performance for the period from 2007 – 2014. Most importantly, this study proposed, for the first time in literature, a correlation analysis between banks’ performance and shipping market cycle. The result reveals that banks generally have a reduced exposure to ship finance market, while imposing a tightening lending policy on shipping loans with shorter loan tenor and lower Loan to Value (LtV) threshold. While the influx of capital from alternative sources such as debt capital market, Private Equity and Mezzanine Finance has filled in the funding gap, certain concerns have been raised regarding the negative impact of such “unguided capital” on shipping market in the long run. Furthermore, a positive correlation between ship finance banks’ Return on equity (RoE) and Clarksea index is concluded using Person Product Moment Correlation Coefficient, inferring that banks’ performance is moderately correlated with shipping market cycle. This study also explored, on a maritime cluster level, the inter-relationship between ship finance and ship registry, ship brokering, maritime law and insurance sector. From a financier’s perspective, all four sectors are inter-related with ship finance market, while more direct interaction are seen with ship brokering and maritime law sector. In addition, it is pointed out that the development of an International Maritime Centre (IMC) relies on a broadened and enhanced maritime cluster with a holistic growth in all sectors. Future research can build upon this study by looking into the level of impact of other identified key factors that could affect banks’ performance, namely cost of funding, regulatory requirement and NonPerforming Loans